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Summary:

Silicon Valley is leaving knee jerk reactions to Google’s lukewarm quarter to the Wall Street crowd. That was the finding of my reporting yesterday after the search giant reported its earnings. I filed this report for CNN Money, that went live this morning. Though, I never […]

Silicon Valley is leaving knee jerk reactions to Google’s lukewarm quarter to the Wall Street crowd. That was the finding of my reporting yesterday after the search giant reported its earnings. I filed this report for CNN Money, that went live this morning. Though, I never got to quote him for the story, David Hornik of August Capital sent a very succinct message that sums it up nicely. “I suspect that every one of my startups would be thrilled to miss their earnings by *only* making $1.92 Billion in the quarter,” he says. “Google’s performance remains spectacular, so I can’t imagine that it will negatively impact the startup climate.”

Toni Schneider, an entrepreneur who recently left Yahoo to become a partner with San Francisco-based True Ventures, sees parallels between how Google and Yahoo were treated by an over-optimistic Wall Street. “The numbers are pretty good and everything is growing,” says Schneider. “I don’t see any gloom or doom.”

Jeff Clavier, who understands online advertising and search game pretty well pointed out that

Google, which sells ads on its own Web sites as well as ones run by other publishers, is shifting more ad revenues to its own network. According to Clavier, that indicates that Google’s core business of search is improving.

Still, there is school of thought that (public market) investors should tame their expectations, especially because Google has done such a good job in the past. The company some feel has cleaned up in the keyword advertising business, and needs to find new areas of growth. “Size is the enemy of growth,” Scott Potter, a general partner at venture capital firm San Francisco Equity Partners. Google faces the challenge of growing faster than the overall shift of ad-spending toward the Internet. It will be harder since MSN and Yahoo are getting energetic about their own advertising plays. Maybe that’s why the China deal was done – sheer economic pragmatism being put ahead of the ideals of twenty-something founders.

I don’t know about others but there had been a sense of euphoria that had taken over the Google, Yahoo and other stocks. I think that sentiment has broken. Six months ago, China deal would have been hailed by Wall Street and tacked another $50 a share to Google stock price. Similarly, a good (not great) quarter is being viewed as end of the world. That’s the price you pay, when you are priced for perfection – and perfection as we know doesn’t exist.

CNN/Money: Shrugging off Google’s miss

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  1. Wall Street’s knee jerk reaction? What analyst reports are you reading? Every one I’ve looked at this morning have left estimates the same. One (Pru) even raised their rating. This is standard Wall Street non-knee jerking. It’s called anchoring. You’re making up an event to write about something. No one on Wall Street is knee jerking. That’s Wall Street’s problem.

  2. The only analyst I know of who is negative — Scott Devitt — was negative before the call. His note is llinked to here.

  3. doris, and david … analysts don’t make wall street. the knee jerk reaction was $75 plunge in the shares in the after markets. read previous post. if that is not knee jerk, then what is. analyst reports are dressing for ma-and-pa investors. no one, especially big gambling hedge funds take them seriously.

  4. Why is the $75 plunge knee jerk when the $400 odd increase isn’t? It shows your bias on this article. Face it. Google is not doing as well as people thought. Asia is not going well. They can’t even figure out their tax structure. The stock should come down. Don’t be ridiculous.

  5. actually doris, i have been saying this for the longest time. 475$ is just plain dumb, and people have not learnt from the past. go read my previous posts, especially google-2000. from january 6th.

    “Google punters are going get their shins kicked….. hard.” http://gigaom.com/2006/01/06/google-2000/

  6. Panasonic Youth » Blog Archive » Wednesday, February 1, 2006

    [...] So Google has finally fallen below the insane $400 level due to missed earnings. Will they (and the valley) just shrug it off? Tristan Louis has an insightful analysis of the state of Google, and what they need to focus on going forward. More worrisome, however, is the development of the Google monoculture. Much of what is going on at Google is happening with little involvement and input from the community. [...]

  7. Anybody, especially siliconized, who suggests that there is no doubt in the future of a company evolving as fast as Google is simply not paying attention. With the capitalization exceeding that of some nations, Google is hardly comparable to a startup.

    If this was a “knee jerk” it was more consistent with reality than the rising price last year. I’m simply floored by those, including you Om, who should know better to imply that this time the huge stock price and expectations are “realistic”.

    Oh, really?

  8. Joe,

    you are missing the point here. did i say anywhere, read the post and the article again, that the stock price and expectations are realistic? no i did not.

    i am not saying that the huge stock prices etc are realistic. if you have been reading the blog for past few months, i have been consitent in saying guys, hang on a minute, lets not get too excited.

    i am reporting what silicon valley is thinking right now. the report on cnn money shows clearly what the silicon valley community thinks.

    on the point of stock price, seriously i cannot think why people should pay $200-$400 for this company. i am not an expert on what motivates people’s greed, but in the end that’s what it is.

    clearly at $6.2 billion in sales, if Google is start-up, then i have a waist size of 26. still, i think the knee jerk reaction was clearly on part of the same wall street, that bid up the stock.

  9. I am not a great chartist, but looking at the after hours trading pattern, I could sense their was strength in the stock. What usually happens is the tug of war beteeen the bulls and the bears. Bears tried to hammer the stock but looks like the Bulls are in no mood to give up. The Bull operators must have bought all the stock at lower levels. In the past 3 months, everytime Yahoo Finance folks wrote about Google nose diving below $420, the Bulls have supported the stock.

    Google’s valuation is beyond “Om” or “Doris”. No offence. It is a growth stock and laws of Berkshire don’t apply. Let see what Safa has to say. CAUTION! CAUTION! Larry and Sergey are selling their own stock(options) as if their is no tomorrow.

  10. Factual error nitpick: David Hornik of August Capital is wrong when says “I suspect that every one of my startups would be thrilled to miss their earnings by only making $1.92 Billion in the quarter.” Google’s revenues for the quarter were $1.92 billion. GOOG earnings were $372 million.

    Also, I don’t know Mr. Hornik but I wonder: is his displeasure not keenly felt and known when any of his startups badly miss making the business plan — even if the raw results are OK?

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